Petrol prices to ease further

Record profits; Sales growth near best in decade; Petrol prices to ease further Business Indicators; Job Ads; Fuel prices; Inflation gauge

Profits: Company operating profits rose for the seventh straight quarter, up by 1.7 per cent in the March quarter. Profits were up 7.8 per cent on the year.

Sales: Over the year to March, real sales were up 1.5 per cent on a year earlier, in line with the decade average.

Job advertisements: ANZ job advertisements fell by 8.4 per cent in May “but recovered strongly in the last week of the month.”

Inflation: The Melbourne Institute monthly headline inflation gauge was flat in May after 0.2 per cent lift in April. The gauge’s annual growth rate decelerated from 1.8 per cent in April to 1.7 per cent in May. The smoothed 12-month annual average of the gauge is at 1.9 per cent – the slowest growth rate in almost two years.

Petrol: According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 2.1 cents in the past week to 145.7 cents a litre.

The job advertisements data is a leading indicator of the job market and therefore important for consumer-focussed stocks and companies such as SEEK. Movements in the petrol price can affect consumer spending, and in turn, prospects for retailers. The Business Indicators data provides a guide to how industry sectors are faring – including data on profits, sales, inventories and wages.

What does it all mean?

• Profits are at record highs. Annual nominal sales is growing near the fastest pace in a decade. The wage bill is growing at a faster pace than the decade average. In short, there was a lot to like in the latest batch of data. And the data preceded the Federal Election in an otherwise ‘soft’ period for the economy.

• Relief lies ahead for motorists. The Singapore gasoline price has fallen by 15 per cent in Australian dollar terms in the past fortnight or around 10 cents a litre. The pump price could ease from $1.45 a litre to $1.35 a lire in the next 2-3 weeks, saving motorists around $15 a month when filling up. What do the figures show?

Business Indicators

• Company operating profits rose for the seventh straight quarter, up 1.7 per cent in the March quarter. Profits were up 7.8 per cent on the year.

• Profits rose in nine of the 15 industry groups in the March quarter. Profits rose most in Administrative and support services (up 10.0 per cent) and Financial and insurance services (up 7.6 per cent) but fell most in Arts and recreation services (down 15.5 per cent) and Rental, hiring and real estate services (down 10 per cent).

• In the year to March, profits hit a record high of $361 billion, up 8.0 per cent on a year earlier.

• In rolling annual terms, mining operating profits rose by 23.6 per cent for the year to March to a record high of $136.8 billion. Non-mining profits rose by 3.7 per cent to a record $224.2 billion.

• Unincorporated gross operating profits fell by 3.7 per cent in the March quarter after rising 2.3 per cent in the December quarter. Business gross operating profits rose for the seventh straight quarter, up 1.1 per cent. Company profits before tax rose for the fourth straight quarter to be up 1.5 per cent in the March quarter.

• Inventories rose by 0.7 per cent in the March quarter after a flat result in the December quarter. Inventories will add 0.2 percentage points to economic growth. Three industries reported higher stocks and the other three fell. Mining rose the most, up 2.3 per cent with Retail trade up 1.9 per cent. Utilities fell 11.5 per cent.

• Real sales rose in 12 of the 15 industry sectors in the March quarter. Sales rose the most in Arts and recreation services (up 6.9 per cent). Sales fell most in Manufacturing (down 4.3 per cent) followed by Construction (down 0.6 per cent) and Transport (down 0.3 per cent).

• The total value of sales rose by 0.5 per cent in the March quarter to be up 0.7 per cent over the year. Over the full year to March, sales were up 1.5 per cent on a year earlier (decade average 1.5 per cent).

• In current prices, sales rose by 5.9 per cent in the year to March, (decade average 3.0 per cent).

• In current prices, sales rose in six states and territories in the March quarter: NSW (up 1.7 per cent), Victoria (up 0.6 per cent), Queensland (up 0.2 per cent), South Australia (down 1.7 per cent), Western Australia (up 3.0 per cent), Tasmania (up 0.8 per cent); Northern Territory (up 11 per cent) and ACT (down 0.7 per cent).

• Wages & salaries (includes changes in wages and employment) rose by 1.1 per cent in the March quarter to be up 4.4 per cent on the year (decade average 3.5 per cent).

Job advertisements

• ANZ job advertisements fell by 8.4 per cent in May “but recovered strongly in the last week of the month.” ANZ said “if the last week of May is indicative, then job ads will rebound strongly in June.”

Inflation

• The Melbourne Institute monthly headline inflation gauge was flat in May after a 0.2 per cent lift in April. The gauge’s annual growth rate decelerated from 1.8 per cent in April to 1.7 per cent in May. The smoothed 12-month annual average of the gauge is at 1.9 per cent – the lowest level since June 2017.

• The trimmed mean gauge was also unchanged in May after increasing by just 0.1 per cent in April. But the gauge’s annual growth rate increased from 1.3 per cent in April to 1.5 per cent in May.

Petrol prices

• According to the Australian Institute of Petroleum, the national average price of unleaded petrol fell by 2.1 cents to 145.7 cents a litre in the past week. The metropolitan price fell by 2.6 cents to 144.9 cents a litre with the regional price down by 1.1 cents to 147.3 cents a litre.

• Today, the national average wholesale (terminal gate) unleaded petrol price stands at 131.2 cents a litre, down 5.0 cents over the week. The terminal gate diesel price stands at 138.1 cents a litre, down by 4.0 cents over the past week.

• Last week, the key Singapore gasoline price fell by US$6.50 or 8.7 per cent to a 3-month low of US$68.20 a barrel. In Australian dollar terms, the Singapore gasoline price fell by $9.84 or 9.1 per cent last week to $98.61 a barrel or 62.02 cents a litre. It was the biggest weekly fall in percentage terms in almost 3½ years. What is the importance of the economic data?

• The quarterly Business Indicators publication by the Bureau of Statistics contains measures such as inventories, company profits and income from sales. Higher inventory (stock) levels can be either intentional or unintentional. If stocks are low and sales are expected to rise in the future, businesses will seek to build up stocks. However an unintentional build-up in stocks is where sales fall short of expectations, leaving more goods on the shelves than desired. If profits are increasing then this may point to increased capital spending and employment in the future. Rising profits are also a sign of favourable business conditions.

• The monthly Job Advertisements release is a leading employment indicator. Employers only seek additional staff if business activity is strong, and more importantly, if they expect that conditions will remain favourable in coming months. It takes around 5-6 months for the new staff to be added to the payrolls. But a fall in job advertisements would have a more immediate impact on monthly employment estimates.

• Weekly figures on petrol prices are compiled by ORIMA Research on behalf of the Australian Institute of Petroleum (AIP). National average retail prices are calculated as the weighted average of each State/Territory metropolitan and non-metropolitan retail petrol prices, with the weights based on the number of registered petrol vehicles in each of these regions. AIP data for retail petrol prices is based on available market data supplied by MotorMouth.

• Melbourne Institute have developed a monthly inflation indicator to give markets and policy makers a monthly update on inflation trends. Based on the ABS methodology for calculating the quarterly consumer price index, the Melbourne Institute Monthly Inflation Gauge estimates month-to-month price movements for a wide-ranging basket of goods and services across the main capital cities of Australia. This report is produced monthly and is released with a lag of one month.

What are the implications for interest rates and investors?

• Inflation remains contained, so the Reserve Bank can ‘go for growth’ – cut interest rates in an attempt to get more people in work.

• Companies are continuing to grow nominal sales at a near 6 per cent annual pace. The extra dollars and modest wage growth are allowing businesses to employ more people. So the annual wage bill is growing faster than ‘normal’ – or the decade average. No surprise then that companies are making money with profits at record highs.

• The US President is using tariffs as an economic weapon. Fearing lower global economic growth, fuel prices are falling. One of the beneficiaries is the Australian motorist. And with more dollars to spend, retailers may see stronger sales.

• CommSec expects a rate cut tomorrow. Another cut is possible in August.